Month: January 2018

It has been nearly a decade since the end of the Great Recession. After such a lengthy period of recovery, there are now signs that the US economy is finally poised to experience robust growth throughout 2018. Perhaps most importantly, current market trends have economists especially optimistic about the possibility of pervasive growth, with many analysts expecting a significant acceleration in wage gains.

During the long period of economic recovery that began in 2009, the US economy posted an average growth of 2.1 percent, with 2.9 percent (2015) representing the high-water mark. Due to the expectation of continued business investment and rising consumer spending, analysts are projecting a 2.6 percent rate of growth for 2018, an increase of 0.3 percent from the 2017 projection (2.3 percent). Since the 2018 projection was made prior to the passage of tax legislation, it’s reasonable to conclude that the 2.6 percent figure might approach a full 3 percent.

Of course, these projections never rely on any single market indicator, and a number of recent developments have contributed to the optimistic economic projections for the year ahead. Consumer demand for automobiles, combined with continued technological innovation as well as the recent rally in oil production, has been instrumental in the recovery experienced in the manufacturing sector. With the global economy also growing stronger, other sectors in the US have enjoyed significant benefits as well.

These recent domestic and international gains continue to play an important role in the declining unemployment rate in the United States. At 4.1 percent, the nation’s unemployment rate is the lowest posted in the aftermath of the Great Recession, when the unemployment rate reached 10 percent in 2009 (prior to 2009, it hadn’t eclipsed 10 percent since 1983).

Even at the current rate of 4.1 percent, analysts tend to agree that the downward trend will continue in 2018. This is good news for American workers, as employers will be forced to compete for new hires and will likely adopt stronger policies intended to retain current employees. Employers will also have to seriously consider instituting robust training programs to help fill existing vacancies, which will give American workers the opportunity to expand their skill set without investing in potentially costly academic programs or vocational schools.

It’s these conditions — an ever-tightening labor market at a time when companies have immediate and expanding employment needs — that have economists confident that wage growth with finally experience significant gains after stagnating for nearly a decade. According to current projections, analysts are predicting an increase of 2.5 percent for 2018, with gains growing stronger with each passing month until finally exceeding 3 percent at year’s close.

When wage growth rises at a rate approaching 3 percent, it’s only natural to expect a commensurate increase in consumer spending, which is responsible for approximately 70 percent of the US economy. Consumer spending is expected to increase at a rate of 2.5 percent, and business investment is projected to grow at a rate of anywhere from 4.5 percent to 6 percent or more.

The recent tax legislation is expected to further bolster these projections, although it remains possible that the overwhelming majority of corporations will opt to use the tax cuts to increase dividends or buy back stock rather than investing in employees by increasing wages or expanding benefits.

Although the full economic impact of the recently passed tax cut legislation remains to be seen, economists recognize ample reason for optimism about the possibility of economic growth in the year 2018. The most recent projections for economic growth are supported by a number of critical market indicators, including declining unemployment rates, increasing wage gains, and the likelihood of increased business investment, all of which contribute to the growing confidence in the future of the US economy.

The priorities of the world’s second-largest economy are quite likely to shift in 2018, as those in charge of overseeing the Chinese economy seem to prefer a more cautious approach focused on protecting against the threat of a potential financial crisis. As a result, stimulating economic growth is no longer the chief concern of Chinese officials. According to several economic analysts familiar with the new priorities of the government, China’s 2018 economic growth target will remain somewhere around 6.5 percent, unchanged from the target set for the previous year.

Over the past year or so, China has sharpened its focus on limiting capital outflows and tracking down any potential “gray rhinos” — the unaddressed and eminently solvable threats that left unchecked might undermine the country’s manufacturing-driven economy. After capital outflows reached an unprecedented $725 billion in 2016, China instituted several policies designed to limit capital outflow. Those policies, as evidenced by the continued improvement in the nation’s foreign reserve funds, are rightly viewed as successful in achieving the government’s desired outcome.

This risk-averse approach is not necessarily welcome news for the local government officials with growth targets that still need to be met. In order to carry out its economic agenda, however, the current administration has expressed a clear willingness to part with any government official who disagrees with the economic plan as it currently exists. Given its firm belief in the course it has charted, it’s fair to predict that China will keep its interbank interest rates high while implementing additional policies intended to keep its money supply growth in check (a rate of 7 or 8 percent is a reasonable estimate).

China is also quite likely to reduce the pace of infrastructure growth, with its longstanding debt concerns representing the principal reason for the reduction. It’s also likely that the country will continue to shift its focus from an economy built on manufacturing to a consumer and services-based economy. As a number of other analysts have pointed out, growth stemming from such a shift is unlikely without further effort to promote the change, with tax cuts being the most frequently suggested strategy for realizing the potential gains of the ongoing economic transition.

Although Chinese officials are adopting a risk-averse approach with the goal of preventing a financial crisis, most authorities remain confident in the country’s ability to create a protective barrier around its financial and economic systems. In the view of these officials, such a barrier — along with the cautious economic plan it has outlined for this year — will effectively limit the impact of any internal or external shocks in 2018 and beyond.

When the United States went through the recession in 2008, not many analysts anticipated such a prolonged period of adverse consequences. The downturn in the economy, that was primarily caused by the housing market bubble, however, is now in the rearview mirror. Or at least, that is what the latest reports created by The Standard & Poor’s Case–Shiller Home Price Indices showcase.

Before diving into the number-heavy data that is the main reason to believe how the housing market is in its “rebirth” stage, defining Case–Shiller Home Price Indices must be done. Basically, Case-Shiller indices are the so-called house price indices for the United States. The numbers are calculated by looking at a minor subset of homes and then generalizing these results on large populations sizes with matching criteria. The ones that are going to be brought up here come from the 20-city composite index as well as the national home price.

With that being said, the latest 20-city index shows a 0.5 percent monthly spike that translates into a 6.2 percent yearly increase in the house prices. The national index, similarly, demonstrated a 0.7 percent increase on a monthly level while the annual rate accumulated to the same 6.2 percent. This is exciting news for the housing industry that has been recovering since 2008 when it faced some of its darkest times.

Even though the aforementioned data clearly presents a reason to be enthusiastic about the future home prices, there is always more to the equation. Case-Shiller’s index is a very prominent tool that millions of people utilize to track real estate prices, but it has its shortcomings. This is why looking at more reports will help minimize the margin of error and facilitate accurate results.

According to Trulia, another outlet that can conduct a market analysis of real estate prices, the nation is still not completely recovered. Ralph McLaughlin, the chief economist for Trulia, indicates that only one-third of all homes have been able to go back to the prices they held before the recession. The other 66 percent can expect to reach those same levels by 2025. If one was to neglect data from an outlet like Trulia and only focus on Case-Shiller’s index, they would expose themselves to wrong interpretations masked by positive numbers.

Regardless of the discrepancies between the levels of optimism shown by Trulia and Case-Shiller’s index, one thing stands – the country is moving in the right direction when it comes to the housing industry. Even if only one in three homes is back at its pre-recession prices, this is a clear sign that the economy is getting better and negative outliers could be neglectable soon. For example, the following data can be treated as a bottom line prediction for where the United States is headed:

Number of large cities that have seen positive changes to home prices: 17 out of 20

Number of large cities that experienced home price reductions lately: 3 out of 20

Importantly, the aforementioned only applies to monthly levels. When looking at those same 20 cities, every single one of them has seen positive movement in home prices on an annual level. Thus, 100 percent of the sample size analyzed by Case-Shiller’s Index is doing better yearly, while 85 percent is even doing better monthly.

No doubt, Trulia and its chief economist Ralph McLaughlin have a great point when it comes to holding people culpable and not letting anyone get overly excited. Nevertheless, the momentum that the housing market now holds might prove to be just enough to bring back the prices from 2006 or 2007.